I can’t offer any personalized investment advice, but I can address your questions and comments in future broadcasts. I look forward to hearing from you.

Now on to your letters…

Q: I would welcome your comments on which companies are likely to benefit from the coming switchover from oil to natural gas, in particular, vehicle conversion companies like Fuel System Solutions and natural gas engine companies like Westport Innovations. ~ Jesse L.

A: Thanks, Jesse. This is going to depend on how large the incentive package is likely to be in the current Energy Bill and whether that will be sustained in subsequent legislation.

Natural gas is the obvious immediate alternative to oil, especially given the fact that we have so much available in the U.S., but it is still going to be expensive. The transition to compressed natural gas (CNG) and natural gas vehicles (NGVs) has begun. But to be sustainable, it will require large investments into infrastructure and support systems.

Fuel System Solutions Inc. (NasdaqGS:FSYS) popped well last week on anticipation that it may benefit from the legislation moving on Capitol Hill. The stock is up over 17% for the month. A “buy” recommendation from Mad Money‘s Jim Cramer didn’t hurt, either.

As it’s standing at the low end of its 52-week range, the current move up probably has some legs left. But remember that over half of the investor interest in this stock is decidedly short-term, with much of the upward movement on Friday resulting from covering actual short positions. That is over at this point. Moving forward, FSYS needs to continue the excellent first-quarter performance with at least equivalent second-quarter figures (due out August 5th).

The company is present in more than 70 countries worldwide, with its primary overseas presence in Italy. The government there is ending subsidies. As a result, as Rome goes, so goes FSYS – at least for the next several quarters.

Westport Innovations Inc. (NasdaqGM:WPRT) is a Vancouver-based company specializing in producing natural-gas-powered engines. Westport is becoming a major player internationally, and is finalizing the purchase of Italy’s OMVL. At home, the EPA recently gave one of WPRT’s heavy-duty engines its 2010 emissions compliance certification. An ability to move into a leading role in truck transitions will position the company well.

WPRT is nearing its 52-week high but should be moving higher. It has its next conference call on August 4th. With an almost 36% increase in fourth-quarter sales, and first-quarter 2010 results more than doubling year-on-year, the expectation is for a similar second quarter.

As for other plays, I still like Clean Energy Fuels Corp. (NasdaqGS:CLNE) – but as a longer-term position. This is an infrastructure play, but it will have a considerable upside once the movement to CNG and NGV begins in earnest. And as the transition intensifies, this company will be a major player in providing CNG and LNG (liquefied natural gas). T. Boone Pickens owns a big chunk of this one. It has increased more than 26% in a month, so expect a pullback.

A: Oilsands Quest is an unconventional producer – oil sands, in situ heavy oil and oil shale – instrumental in bringing Saskatchewan onto the map with the major Axe Lake SAGD (stream assisted gravity development) project. The reserves certainly seem to be there (estimates are put between 1.4 and 2.3 billion barrels), with Axe Lake showing all the signs of a global scale deposit. However, the pilot SAGD project will be decisive in estimating the overall development needs. A considerable amount of good solid FEED (front end engineering and design) has gone into it, and the company is approaching this in the correct manner, unlike some of the companies I have advised across the border in Alberta.

T. Murray Wilson (BQI’s board chair, CEO, and president) gave an excellent presentation of what the company intends to do at Axe Lake, along with an update of its other projects and interests, at the recent TD Newcrest Unconventional Oil & Gas Forum in Calgary. You can review the slides to that presentation here.

This is another stock with a heavy short interest, trading at the low range of its 52-week average. It will succeed or fail on showing progress at Axe Lake. That is certainly where it is putting its emphasis, drilling 23 of its 32 total 2009-2010 exploratory and test wells there, and with over 70% of the 457 total wells drilled to date at Axe Lake. If successful, there will be some SAGD production beginning in 2011 with full commercial flow by 2016.

And in answer to your two questions… therein lies the problem. I like the overall Oilsands Quest approach, from both a technical and a market standpoint. Most of the SAGD and support infrastructure is now on-site at Axe Lake. The company is, therefore, headed in the right direction. Yet without significant oil coming for at least six years, sustaining the project is the real issue.

The same can be said for the company’s other principal deposits – Raven Ridge and Wallace Creek (both in Alberta). Unlocking shareholder value comes with the commercial flow; anything before that is merely blowing smoke over projections. Still, there does seem to be excellent positioning here. No fewer than 10 other projects are moving on the other side of the border in Alberta. By the end of the decade, those operating companies expect their new projects to bring on-line at least 643,000 barrels a day. And this is in the same immediate area that BQI is developing.

Q: There was an article the other day that India’s Reliance Industries had surplus refining capacity for an estimate 8 to 10 years and had just signed on to supply Iran with refined product. Please comment in one of your future missives. ~ George J.

A: Reliance Industries Ltd. (OTC:RLNIY) – infrequently traded here but a mainstay of both the Indian refining and stock markets (BSE:RIL) – is definitely not selling product to Iran.

The company had done so on occasion, in 2009, but has ended the practice. It has even put a clause in its off-take contracts advising purchasers that RIL does not allow third-party traders to redirect shipments to Iran. In February of this year, Malaysian Petronas (Petroliam Nasional Bhd; MK:PET) ran a risky flip of a Reliance consignment to the Iranian port of Bandar Abbas, using its trading intermediary unit and a swap contract out of Singapore. Reliance publically called them on it, and Petronas has stopped the practice.

Now, the underside of the international oil trading market is a murky place, at best. Neither RIL nor any other refinery can really control what customers ultimately do with consignments. However, in this case, RIL has more to lose from U.S. sanctions being applied against company assets than it does trying to sneak a shipment into Iran.

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